In Which Brad Plumer Asks The Wrong Question About A Carbon Tax

As so many do in fact ask the wrong question about a carbon tax. For while it is true that a carbon tax is the complete solution to climate change it isn't because it would stop climate change:

Well, set aside the fact that there aren’t yet any prominent politicians touting the idea. It’s still worth discussing on its merits. And one of the biggest questions here is whether a carbon tax would actually reduce U.S. greenhouse-gas emissions significantly. Is it a comprehensive solution to climate change? Or just a small first step?

It is a comprehensive solution: but this is entirely independent of whether it would reduce emissions significantly.

But not everyone’s convinced. Over at the Brookings Institution, Mark Muro recently argued that a carbon tax, by itself, might not be enough to make a significant dent in U.S. global-warming emissions.

That's not the point or aim.

As above, this is a very common misunderstanding of the very point of a carbon tax: it is not, not at all, in order to stop climate change. It is to enable us to have the right amount of climate change.

Let's assume that everyone from the IPCC to Greenpeace is correct. No, no arguments at all about whether climate change is happening, whether it's us causing it or whether it's a problem large enough that we should do something about it. Yes, yes and yes is the answer to each of the three questions.

Great, so what do we do now? Clearly, it's going to cost something to change the way we do everything in this world. Similarly clearly there are costs associated with not doing anything. If we do something then we've got to all use less energy, invent a useful electric car, rebuild the entire energy generation system and in general make some wrenching changes. The money that we use to do those things cannot be used to produce vaccines for the poor, feed the starving or clothe the naked.

If we do nothing then Bangladesh sinks below the waves, Flipper gets barbecued on the tropical beach of Spitzbergen and Texas becomes uninhabitable for weather reasons not cultural ones.

Either way, whichever way we go, people will die, resources will be expended. So, how do we balance how much we should do? How much should we carry on and adapt later, how much should we change now at cost to ourselves now? This is exactly the problem that a carbon tax solves for us.

Let us take the number from the Stern Review of $80 a tonne CO2-e. For the purposes of this argument it's as good as any other and it does at least have some intellectual robustness to it (as does the alternative from William Nordhaus, one of say $5 now rising to $250 or so in 2040).

What the $80 number is saying is that emission of another tonne of CO2 (actually CO2-e but that's detailed pedantry) causes $80 worth of damages in the future. That's bad. My driving to get the fresh bread for lunch, perhaps I should use the bicycle instead. But there are also things that might emit a tonne of CO2 that provide greater than $80 worth of value now. Say, taking a pregnant woman to hospital to treat pre-eclampsia*. Yes, I think two lives saved is worth $80 of future damage, don't you? And I think the people in the future, at least some of whom might be descended from that baby saved might also think so. A carbon tax makes us stop doing the things that provide less than $80 worth of value now while allowing us to continue to do the things that have more than $80 of value.

And that's actually the point: the whole and entire point. We are trying, with all our discount rates and studies and concerns for the future, to maximise human utility over time. Thus we want people to do the things that provide more value now than the damage they do to the future: and we also want people to stop doing the things that produce less value now than the damage they do to the future.

Which is the whole point of a carbon tax. It is not to stop emissions: it is to have the right amount of emissions to maximise human utility over time. A carbon tax is not intended to stop climate change: it is to give us the right amount of climate change.

So asking whether a carbon tax will reduce emissions, or stop global warming, is to be asking the wrong questions. We are trying to maximise human utility: the one thing that the carbon tax actually does do better than anything else.

It's also worth pointing something else out. $80 a tonne CO2 is something like 40 cents a gallon on gas. And that's it, we're done, problem solved, human utility maximised over time. OK, we've now got to add the tax to coal and natural gas and so on but the real point about the carbon tax is how trivially small the solution to climate change is. I myself just don't understand why everyone makes such a fuss about it. get on with it and we're done, sorted. In fact, in my native UK, the numbers are such that the correct carbon tax would lower the price of gas.

* Yes, I know, neither would emit a tonne of CO2. So? It's an example of the logic only.